Indian Startups Prepare for Worst Amid COVID-19 Outbreak

Indian startups performed extremely well last year. They raised a record-breaking $14.5 billion during 2019. The prominent investors in India have already told the startups at the start of 2020 to prepare for the worst due to the looming dangers of the COVID-19 pandemic. The investors told them to cut spending as a precautionary measure.

According to the sources, an open letter has been issued by the ten local and international equity and venture capital firms. According to the letter, it will be difficult for the startup founders to close their fundraising deals due to the current changes in the macro-environment. Accel, Lightspeed, Sequoia Capital, and Matrix Partners are included in the letter issuing investors.

Kalaari Capital, SAIF Partners, and Nexus Venture Partners are the famous names in India in the field of backing up the potential startups at the early stages. They asked the founders of the startups to stay ready to have a 12–18-month runway with what they raise. They also urged the founders to remain prepared not to see their startups’ value jump anytime soon.

They said, “Assumptions from bull market financings or even from a few weeks ago do not apply.” They requested the startups to adjust their business plans and messaging accordingly. “Many investors will move away from thinking about ‘growth at all costs’ to ‘reasonable growth with a path of profitability.’”

Investors have already shown the signs of losing the appetite to invest in the current market situation. Tracxn, a research firm, released the details of the money raised by the Indian startups in the last three months. According to the details, Indian startups raised $496 million in 79 deals in March. It was a low amount as compared to the previous two months, according to Tracxn.

Tracxn told the media that Indian startups raised $2.86 billion in February from 104 deals and raised $1.24 billion across 93 deals in January. The research firm said that Indian startups raised $2.1 billion from 153 sales in March 2019. The Indian government has announced a nation-wide lockdown in March. The lockdown orders have been issued by the government to avoid the spread of the COVID-19 infection in India.

The founders of several startups in India told the media that their businesses were affected by the nation-wide lockdown. The co-founder and CEO of mobility form Bounce, Vivekananda Hallekere, said the press that they had cut the salaries across the board. Hallekere added that the salary cut was not implemented on the workers who were making less than $3950 per year.

Hallekere added, “Glad we raised money when we did not need.” The founders of Bounce will take a salary cut of 100%. Hallekere told the media that the salary cut would give them runway of beyond 30 months. Bounce is a Bengaluru-based startup that was heading towards raising over $100 million. Hallekere said, “The investors have called off the deal for now.”

Zomato, a food delivery firm, said that they would secure an additional $450 million by the end of the month. Zomato raised at least $150 million in January 2020. The money is yet to arrive after two months. Virtual Capital firms have described the current environment as an “Uncharted territory.” Most of the startups have started cutting the salaries of their employees to cope with the current environment. They have also begun to let go of some employees to survive in this uncharted territory.

Ixigo, a travel and hotel booking startup firm, said that they had decided to cut the salaries of top management officials up to 60% and other employees up to 30%. MakeMyTrip, a giant in the category of hotel booking and travel, also announced the salary cut of its top management team.

Nykaa, a beauty product and cosmetic retailer in India, announced the closure of its business. Nykaa said that they would not be able to pay their dues on time to its partner ventures. The startup founders have been alarmed by the investors to stay away from the ‘wait and watch’ approach. The startup founders need to assume that they would not get paid on time, according to the investors.

Investors also cautioned the startup founder to stay prepared for the delays in their receivables. The customers are most likely to ask for price cuts. Investors said, “The contracts will not close at the last minute.” They added that the revenues of most businesses would touch the zero-mark due to the lockdown. The investors said, “The recovery curve may be a ‘U’ shaped one vs. a ‘V’ shaped one.”